Even though the current inflation rate is causing higher prices in the economy, raising interest rates and reining in the prices may actually cause even more pain in the economy, including an increase in job losses. Because inflation is currently at a 40 year high, many people are calling for the Fed to raise interest rates a half percent in March, but some economists are arguing that raising interest rates that high could actually hurt the people that the battle on rising prices is supposed to be helping.
Raising interest rates would have the effect of slowing down a very fast economy, but this slowdown would decrease the amount of job gains, and could actually lead to job losses for the lower income segment of the labor force. The economy currently has 2.5 million less jobs than it did before the pandemic, so employers still need to keep hiring to get our labor force back to where it was prior to the pandemic. This increase in interest rates would have an opposite of desired effect and could lead to more economic hardships for the people currently making the least amount of money in our labor force.
Although raising the interest rates would most likely lead to more unemployment, most economists realize that the Fed does have to take some action to stop inflation. So, some economists are advocating for a quarter percent increase of the interest rate, instead of a half percent, to try and get the economy in a more normal and stable position without causing as many problems for workers as raising the interest rate even higher most likely would.
https://www.cnn.com/2022/02/16/economy/inflation-fight-pain/index.html
There are some options in order to reduce the current level of inflation. I wonder whether the Fed will announce the increase of discount rate begore March. In my opinion, businesses should try to implement other strategies to hire employees. For example, sign in bonus, higher salary, better benefits, or remote working opportunity.
ReplyDeleteThis is interesting because I read a New York Times article back in January that framed it as though there were no option but to heighten the interest rate, and while there were risks this was the ultimate fix. It was interesting to read more about those risks in this blog post.
ReplyDeleteWith inflation and higher gas prices and the general price of living increases, the last thing our economy needs is a higher unemployment rate. People need to be in the labor force so they can pay their bills and avoid interest rates on payments because they are late due to not having an income.
ReplyDeleteThe goal of Fed is to keep inflation stable, and unemployment rate low. If they are planning to increase interest rates then this might be the best way forward. Besides, interest rates had been record low for months so it was inevitable that they would rise again.
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